Estate Charges (Rentcharges) - Best Avoid or not really a problem?

Maffy52

Hi All, I am planning to buy a house which is freehold but has estate charges attached to it (rentcharges). I have researched a little and it sounds like things could get pretty bad if I ever fall into arrears, and may make it difficult to SELL the property in the future (as mortgage companies avoid properties with rent charges). Does anyone have any first-hand experience of this and can you offer me any advice?

katejo

Are you sure that it is freehold. Some areas of the country have houses which are leasehold.

eddddy

katejo said:

Are you sure that it is freehold. Some areas of the country have houses which are leasehold.

Estate Rentcharges usually apply to freehold houses.

Leasehold houses usually only have ground rent and service charges.

rigolith

It's a scam, and a huge risk. You need to look very carefully at it, such as what the maximum increases are. The property should be priced to reflect this, and you will likely be pricing it similarly (or hoping someone clueless comes along) when you want to sell.

eddddy

Maffy52 said:

Hi All, I am planning to buy a house which is freehold but has estate charges attached to it (rentcharges). I have researched a little and it sounds like things could get pretty bad if I ever fall into arrears, and may make it difficult to SELL the property in the future (as mortgage companies avoid properties with rent charges). Does anyone have any first-hand experience of this and can you offer me any advice?

Are you buying with a mortgage? If so, your lender is unlikely to lend on a house with a 'standard' estate rentcharge.

As you probably know, section 121 of the Law of Property Act 1925 says that the 'Rent Owner' can do nasty stuff like take possession of your house, if you don't pay the estate rentcharge.


So you need a Deed of Variation - that says some or all of the following:

• The 'rent owner' promises they will never take possession of your property (even if you are in arrears), or

• The 'rent owner' will give you and your mortgage lender 2 months notice, before taking possession of your property (to give time for the arrears to be paid), and/or

• If the 'rent owner' takes possession of your property, they will give it back, if you pay the arears.

Most 'rent owners' (i.e. developers, management companies etc) seem happy to sign these deeds of variation - but it sometimes takes a few weeks to get it sorted.

eddddy

rigolith said:

You need to look very carefully at it, such as what the maximum increases are.

It wouldn't be viable to set a maximum increase.

It's a case of paying for whatever maintenance and repairs are necessary.

For example, if a tree blows down blocking an estate road - it's not really viable to say "We can't get contractors in to remove the tree and unblock the road, because that would take us over our maximum allowed increase."


And it would be the same, if fences blew over, pot holes in the car park needed repairing, blocked drains needed clearing, street lighting needed repairing, etc. It's not really viable to say that those things can't be repaired because the maximum allowed increase in estate rentcharges has already been hit.

Lumiona

We pulled out of a new build due to the fleecehold charges. No caps or control over the management charges. Not a risk we were interested in taking. 

dannim12345

Is this an old house or a new one?  We had this on both our (old) houses in Bristol, where it is quite common.   First house it was never asked for / requested but when we sold we had to get an indemnity policy for it.  The next house the solicitor wanted the same but paperwork was found to show it was bought out in the 90’s but not sorted with the land registry so that was sorted during the sell. 

They were set up by the builder or land owner but these people won’t be in business or alive but it could be passed on / sold to a company who will repossess (probably the wrong term) if you do not pay. So a big risk to a mortgage company, even though the cost is usually £1 - 5 Pa and you can buy it outright (if a known company).  

Max_Wonger

Our estate consists of covenanted freehold and leasehold properties . The leasehold and freehold covenants are different but both commit the owner to pay an annual maintenance charge which is mainly used to pay gardeners to tend the communal lawns and ( private ) road repairs . However we are all directors of the management company so have a say in the charge and how it's spent ( plus no agents to pay ) . On sale of a property the conveyancing solicitor usually asks the company for a certificate of compliance with the covenant. In theory this could be withheld if there were arrears - the idea being  Land Registry would refuse to record the sale without it . However I'm not convinced this is effective as I know some properties have changed hands without this. In practice I think the only sanction against non payment is for the management company to withdraw co-operation with the seller's solicitor or else sue in the civil courts. 
To my knowledge the existence of a covenant has never affected the ability to obtain a mortgage.

chanz4

sold ours with zero issue on a mortgage

Maffy52

katejo said:

Are you sure that it is freehold. Some areas of the country have houses which are leasehold.

Yes, is is freehold (but has some clause in the deeds which say that these estate fees need to be paid to a managment company.